Crypto markets are facing slower activity as capital moves toward artificial intelligence, while tighter liquidity weighs on trading volumes. GSR Head of Markets Spencer Hallarn says cooling AI investment and Federal Reserve rate cuts could bring fresh liquidity back into crypto markets.
Hallarn described the current environment as “a slow market,” noting that crypto activity generally follows prices and market capitalization. He said artificial intelligence is pulling investor attention and capital away from digital assets as large technology companies raise money to finance AI infrastructure.
“The scale of capital being raised to fund AI infrastructure, including the equity big tech companies are issuing to pay for it, is tightening liquidity across markets more broadly, and crypto is feeling that pull,” Hallarn said.
Crypto Clients Turn to Hedging
The weaker market has pushed clients toward longer-term budget planning and treasury management. Projects are increasingly looking to protect funds needed for dollar-denominated expenses regardless of crypto prices, driving demand for OTC hedging structures.
Hallarn also pointed to real-world assets as another major area of interest. Exchanges are expanding beyond crypto into equities, sports gambling and other asset classes, creating new requirements for liquidity providers.
Tokenization Faces a Reality Check
Hallarn questioned whether current tokenization platforms are generating enough activity to justify the attention surrounding the sector. Many operate as “walled gardens” with extensive KYC requirements but have yet to produce meaningful transaction volumes.
“I’d actually frame tokenization less as a new trading product in its own right and more as a challenge to how traditional banking and settlement rails work today,” he said. “The bigger opportunity is in fixing the plumbing, not just wrapping an asset in a token.”
He added that liquidity remains fragmented across private platforms and alternative trading systems. Zero-knowledge technology could eventually make identity verification less restrictive, but that remains a future development.
GSR Builds for Market Convergence
GSR is developing price feeds, trading capabilities and infrastructure connecting traditional finance with crypto. Hallarn said the core discipline of market making remains “quite portable” when moving between crypto, commodities and securities, with differences largely depending on each market’s structure.
He sees opportunities in shifting hedging activity from crypto spot markets toward underlying equity and futures markets.
Fed Cuts Could Support Another Rally
Hallarn said the return of a crypto bull run will depend heavily on macroeconomic conditions. “If AI-related investment cools off and the Fed starts cutting rates, liquidity should come back into the system, and that’s the kind of environment that could support another Bitcoin move higher,” he said.
He remains less certain about smaller cryptocurrencies, arguing that the sector must eventually deliver on promised use cases to sustain long-term value.
Despite the slowdown, Hallarn remains constructive on the industry, saying the underlying business needs have not changed: “Clients need liquidity, hedging, and execution regardless of where we are in the cycle.”
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